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6th Bunkernet Bunker Conferencebunkernet.com.cy/.../04/02.-Robin-Meech-Bunkernet-6-April-2017...
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1 [email protected] 6th Bunkernet Bunker Conference Industry Trends and 2020 Robin Meech Marine and Energy Consulting Limited LIMASOL 6 April 2017
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6th Bunkernet Bunker Conference Industry Trends and 2020
Robin Meech
Marine and Energy Consulting Limited
LIMASOL
6 April 2017
Trends are overshadowed by 2020
• Bunker prices are likely to remain stable until 2020 • Most decisions makers are still uncertain and are putting decisions off
• Uncertainties include
Will there be sufficient 0.50% fuels available in 2020
Will the transition to 0.50% fuels be planned
Will there be strong global enforcement and hence compliance
Will ship operators invest in scrubbers
Will LNG bunkers be a significant factor over the next five years
No
Hopefully
No
Increasingly
No
The 2020 transition presents a mammoth problem • ECA change was 16 million tons from 1.00% to 0.10%
= 0.14 million tons sulphur extracted
• Global Cap will be 130 million tons from 2.6% to 0.50% = 2.7 million tons
• Over 18 times more sulphur to be extracted
• Over night and globally
• There will be a wide range of 0.5% S blends
• Which are expected to present problems
Compatibility Stability Pour point issues ISO grading
• None have been blended commercially yet • No doubt a steep rise in fuel testing
0
10
20
30
40
50
60
70
80
90
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Nominal $/bbl 2015 $/bbl
Oil prices may well stay relatively stable in current $ terms
Floor set by higher variable cost sources
Ceiling set by longer term fracking costs Brent $/bbl
Bunker price differentials expected to deviate after 2020
$240/ton $135/ton
$170/ton
$400/ton
A sharp drop off in BFO demand in 2020 could see the price plummet
*
* High Sulphur Bunker Fuel Oil
At this differential residual oil will remain available
Abatement is financially attractive but has some drawbacks • Investing in scrubbing after 2020 will provide positive cash flow in less than
2 years for a new build 3 years for a retrofit
• Financing and hedging the sulphur differential
Greatly improves cash flow Reduce risks
Days steaming pa
Months to positive cash flow
Take up of abatement will depend on owners decisions but unlikely to be inhibited by construction capacity
Estimates for year end 2016 2020 2020 2021 2030
Source Various CE Delft EnsYs MECL* MECL Number of ships with scrubbers 460 3,800 4,600 3,200 22,000 Million tons scrubbed in year 4 36 48 26 142
* MECL - Marine and Energy Consulting Ltd
Million tons scrubbed
MECL
CE Delft EnsYs
Average Global Prices -$/ton
• Lower prices make LNG bunkers more competitive
• LNG not significant before 2025
• But scrubbing still lowest cost compliance route
• De-carbonisation will eventually increase consumption of renewables
Ten Year Cash Flow $ million
Demand for LNG will be accelerated from lower future prices
Changeover in 2020 will be less dramatic than modelled in IMO study • Relatively low compliance in earlier years reducing demand for 0.50% fuels • Introduction of some proposals to smooth the transition might be
Owners with scrubbers on order might to be permitted to use 3.50% bunkers until installation
Adopting a standardised FO Non-Availability Report (FONAR) may reduce demand pressure on 0.50% initially
Initially enforcement in territorial waters only Reduced enforcement in 2020
• Fuel oil demand may well recover dissuading refiners from investing $ billions in fuel oil destruction • Where will the residual surplus go?
Increased conversion capacity China teapot refineries Powergen in Russia, China, Africa or the Middle East
• There are significant implications for lube manufactures
Propensity of refiners to meet the 0.50% demand muted
Residual Demand - million tons
• And 35 Open Registries - ITF* Of which 13 are signatories to Annex VI and 22 are not Open Registries account for 70% of bunker purchases
This leaves scope for re-flagging reducing compliance
* ITF - International Transport Workers' Federation
There are 88 signatories to Annex VI
Enforcement of the global cap may prove complicated without new regulations and resources
• Outside territorial waters and ECA the compliance agency is the vessel’s flag state
• There are serious questions as to how diligent certain flag states will be
• States that are not signatories to Annex VI have no obligation to enforce
the global cap
• There are 172 states within IMO hence there are 84 non signatory states
• However, over 90% of global trade passes through ports in the 87 signatory states
• To date 28 states (26 in the EU , USA and Canada) have significantly enforced Annex VI
• This means 60 states require port state enforcement resources and to train officers
Routes to improved enforcement are being sought
* Pollution Prevention and Response Sub-Committee
• Make it illegal to leave port with insufficient bunkers to reach next designated port compliantly This requires a change to Annex VI Enforcement would be under local jurisdiction Can accommodate scrubbers Still requires the state to enforce
• Ban the carriage of higher sulphur fuels in bunker
tanks unless the vessel has approved abatement system
• Other approaches are under review Discussion at IMO at PPR
• IBIA with others are seeking to
Smooth the transition to 0.50% limit Improve compliance Clean up the environment
Over the period 2020 to 2035
Additional costs to shippers will average $22 billion pa
Average freights will increase by 12% assuming bunkers represent 60% of costs
The big question is how will ship operators recover these costs?
$ billion 20% increase in shippers’ costs
• Involved in committees and correspondence groups relating to bunkers
• Has a member of its staff attending all relevant IMO meetings.
• We report back to our members on all of the IMO discussions and conclusions
• We encourage members to interact with their national delegations
• Inclusion of member’s ideas and concepts through the IBIA Working Groups • Port Charter
Unified procedures Improved enforcement
IBIA is very active
Providing a balanced voice for the membership at IMO
In summary
• Scrubbing appears to presents the lowest cost route to compliance From “cost saving” to “saving the business”
• Great variation of 0.50% S blends will present challenges
• Resurgence of BFO demand could mute refinery investment in residual destruction
Lack of avails of 0.50% S bunkers immediately after 2020 Increased use of 0.10% S fuels
• What should we be looking out for
A lead from IMO on enforcement and transition planning Take up of scrubbing Refiners announcement of their capability to produce 0.50% bunkers
• If a practical approach is not adopted to the transition non-compliance may become
the norm
• Compliance must be clarified and strengthened Amend Annex VI to give PSC increased powers Improved port systems
The transition may take more than four years and will be very costly
6th Bunkernet Bunker Conference Industry Trends and 2020
Robin Meech
Marine and Energy Consulting Limited
LIMASOL
6 April 2017
Marine and Energy Consulting Limited (MECL) was established 15 years ago
Consulting Services
Ship Owners • Fuel Strategies • Scrubber Selection • Compliance Options • Technology investments
Bunker Suppliers • Supply Strategies • Investment Evaluation • Strategic Development • Organisation
Investors • Vessels • Terminals • Bunker Suppliers • Finance
• Bunker for Managers • Blending • Claims
Abatement Technology and Finance Limited • Leasing Scrubbers • Hedging Sulphur Premium
Publishing “Outlook for Marine Bunkers and Fuel Oil to 2035” “Bunkers – An Analysis of the Technical and Environmental Issues”
